Investigation suggests reward and compensation policies may be doing more harm than good
26 November 2014
Evidence presented at HR summit by CMI Ambassador suggests a downside but little upside.
Reward and remuneration policies may be doing more harm than good. According to CMI ambassador Prof. Colin Coulson-Thomas boards need to question whether they are helping or hindering their SMART objectives (ie, goals that are Specific, Measurable, Achievable, Realistic and Timely). Speaking at a summit for HR practitioners in Istanbul the author of Winning Companies; Winning People pointed out that his investigations of what high performers do differently reveal large and measurable differences in performance among people rewarded and compensated the same way.
Coulson-Thomas explains: “The variability of performance across the members of key work-groups raises serious questions concerning the relevance and contribution of many reward and compensation policies and practices. Wide differences in performance are explained by how many critical success factors are in place. The extent to which the job, task or activity is done in a winning or losing way determines outcomes. How people are paid does not seem a key influencing factor.”
The professor continues: “Neither is reward and compensation a differentiator in the many sectors in which the policies and practices of competing companies seem largely the same. For key jobs such as bidding for business, building key account relationships, pricing, purchasing, or creating and/or exploiting know-how the approaches of winners - or those in the top quartile of achievement - are very different from those of losers in the bottom quartile of achievement.”
A succession of reports produced by teams that Coulson-Thomas has led have examined critical success factors for key jobs. He finds “the evidence suggests that however much you are paid and however motivated and engaged you are, if you approach a task or activity in a losing way you are likely to fail. Increasing remuneration in the hope of a better result while people's approaches and the support they receive remains unchanged is like pouring money down the drain.”
The professor believes “Reward and compensation policies and practices also contribute to mis-selling and other abuses. The prospect of high commission payments can bias one's views, distort judgements, encourage risky behaviour and result in a flouting of rules. There are other expensive practices and naïve behaviours, such as a policy of paying above average or in the top quartile to attract better people and then complaining about the cost of talent wars.”
The CMI ambassador's research also suggests “Reward, compensation and a range of other policies that most companies pursue may have much less impact than those who champion them and/or who have a vested interest in them claim. Too many companies are pursuing policies that are general, time consuming and disruptive when quicker, cheaper and more affordable options exist”.
Coulson-Thomas shared findings from his recent reports which show how an alternative approach such as providing support that enables average performers to emulate the approaches of their more successful peers can have a quick, significant and measurable impact and deliver multiple benefits for both people and organisations, including large returns on investment within a few months.
According to Coulson-Thomas: “Putting the focus upon performance support and helping key work groups has other advantages. When done the right way people learn with each use and challenge they face, becoming more competent and confident by the day. Incorporating social networking can increase the speed of informed responses and work with the grain in relation to members of generation Z. For young people, receiving relevant help and support 24/7 whenever and wherever required - including when on the move - may have more impact than compensation changes.”
Coulson-Thomas' reports Talent Management 2 and Transforming Knowledge Management found that many talent and knowledge management programmes are not affordable. In uncertain times companies are paying a premium to bring in potential high fliers they may not need. The people recruited may be difficult to manage and costly to induct, train and retain. They may know about things rather than how best to do key jobs, and their special treatment may annoy others.”
Coulson-Thomas also speculates: “A ratchet effect may be in operation, with the wrong reward and compensation policies having a negative impact on behaviour, while many expensive approaches deliver little in the way of positive benefits in relation to other ways of improving performance. Too often walking overheads and those in roles that are neither visible nor a source of competitive advantage or differentiation benefit the most from general remuneration policies.”
The professor called for realism: “Many customers, clients and the public do not care about the expensive, highly qualified and multi-skilled people you employ who may know something about a great many things without excelling at anything in particular. Customers and clients may not worry whether your people excel at team work or not if their problems and/or requirements are being handled by one person. They may just want an affordable, acceptable and quick response.”
He suggests: “Rather than follow the herd and roll out general policies, HR directors and their teams should focus on particular work-groups. When establishing remuneration policies for these key activities they should bear in mind their purpose and importance, the preferences and aspirations of those involved and the impact of other initiatives and policies upon them.”
The professor concluded by calling for a change of direction: “Putting the emphasis upon helping and supporting those in key roles that contribute directly to the achievement of key corporate objectives can have much greater impact. Furthermore one can put better performance support in place and quickly get a range of benefits with existing people and a current structure and culture.”
Prof. Colin Coulson-Thomas is a CMI Ambassador and holds board, public and academic appointments and has helped companies in over 40 countries to improve board and corporate performance. He has authored over 50 books and reports. Prior to joining the University of Greenwich he had professorial roles in Europe, North and South America, the Middle East, India and China. He was educated at the LSE, the London Business School and the Universities of Aston, Chicago and Southern California. A fellow of seven chartered bodies he secured first place prizes in the final examinations of three professions.
The Performance, Compensation and Reward Management Summit was held in Turkey at the Safir Hall at the Istanbul Marriott Hotel Asia. For his opening keynote address Coulson-Thomas summarised findings from his book Winning Companies; Winning People: Making it easy for average performers to adopt winning behaviours and three reports setting out a more affordable route to high performance: Transforming Knowledge Management, Talent Management 2, and Transforming Public Services. They are available from www.policypublications.com.